On March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 (the “ARPA”) into law.  The ARPA includes clarifying language regarding the scope of Form 1099-K (Payment Card and Third Party Network Transactions) reporting for third party payment networks and a change to the de minimis reporting standard applicable to third party settlement organizations (“TPSOs”) effective for returns required to be filed for 2022.

Clarification of Scope of Form 1099-K Reporting

The new law clarifies the scope of third party network reporting on Form 1099-K.  Section 9674(b) of the ARPA clarifies that Form 1099-K reporting for third party payment networks is intended to apply only to transactions for goods or services.  Over the years, questions have arisen about whether Form 1099-K reporting for third party networks involve transactions other than goods or services.  Although the definition of third party payment network has always been limited to an agreement or arrangement to settle transactions for the provisions of goods and services, the definition of a third party network transaction included “any transaction which is settled through a third party payment network.”  This raised some question regarding whether payments for royalties or rents for other type of transactions that were settled through a third party payment network were nonetheless reportable under section 6050W.  The law makes clear that such payments remain reportable on Form 1099-MISC (Miscellaneous Information), and only transactions for goods and services settled through a third party network transaction are reportable on Form 1099-K.

Change to De Minimis Threshold

Section 9674(a) of the ARPA changes the de minimis threshold for Form 1099-K reporting for TPSOs.  (No de minimis threshold applies with respect to payment card transactions.)  Currently, the de minimis rule under section 6050W(e) provides that a TPSO is required to report on Form 1099-K with respect to third party network transactions of any participating payee only if (1) the amount that would otherwise be reported exceeds $20,000, and (2) the aggregate number of transactions exceeds 200.  The new law replaces this two-step de minimis standard with a single $600 reporting threshold effective for 2022.  Accordingly, a single transaction for more than $600 settled through a TPSO will now be reportable as will multiple transactions that total more than $600.

This change will substantially increase the number of 2022 Forms 1099-K filed with the IRS in 2023.  The change to the de minimis threshold also highlights the importance of adhering to the taxpayer identification number (“TIN”) solicitation requirements and imposing backup withholding at the proper time for TPSOs that have not received a TIN from a participating payee, received a facially erroneous TIN, or are otherwise required to impose backup withholding based upon the IRS B notice process.

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Photo of Michael M. Lloyd Michael M. Lloyd

Michael Lloyd practices in the areas of tax and employee benefits with a focus on information reporting and withholding on cross-border payments (e.g., Forms 1042 and 1042-S) and Foreign Account Tax Compliance Act (FATCA), backup withholding, employment taxation, the treatment of fringe benefits…

Michael Lloyd practices in the areas of tax and employee benefits with a focus on information reporting and withholding on cross-border payments (e.g., Forms 1042 and 1042-S) and Foreign Account Tax Compliance Act (FATCA), backup withholding, employment taxation, the treatment of fringe benefits, cross-border compensation, domestic information reporting (e.g., Forms W-2, 1099, 1095 series returns), penalty abatement, and general tax planning and controversy matters. Mr. Lloyd advises large U.S. and foreign multinationals regarding compliance with information reporting and withholding issues, as well as a range of other federal and state tax issues.

Photo of S. Michael Chittenden S. Michael Chittenden

Michael Chittenden practices in the areas of tax and employee benefits with a focus on the Foreign Account Tax Compliance Act (FATCA), information reporting (e.g., Forms 1095, 1096, 1098, 1099, W-2, 1042, and 1042-S) and withholding, payroll taxes, and fringe benefits. Mr. Chittenden…

Michael Chittenden practices in the areas of tax and employee benefits with a focus on the Foreign Account Tax Compliance Act (FATCA), information reporting (e.g., Forms 1095, 1096, 1098, 1099, W-2, 1042, and 1042-S) and withholding, payroll taxes, and fringe benefits. Mr. Chittenden advises companies on their obligations under FATCA and assists in the development of comprehensive FATCA and Chapter 3 (nonresident alien reporting and withholding) compliance programs.

Mr. Chittenden advises large employers on their employment tax obligations, including the special FICA and FUTA rules for nonqualified deferred compensation, the successor employer rules, the voluntary correction of employment tax mistakes, and the abatement of late deposit and information reporting penalties. In addition, he has also advised large insurance companies and employers on the Affordable Care Act reporting requirements in Sections 6055 and 6056, and advised clients on the application of section 6050W (Form 1099-K reporting), including its application to third-party payment networks.

Mr. Chittenden counsels clients on mobile workforce issues including state income tax withholding for mobile employees and expatriate and inpatriate taxation and reporting.

Mr. Chittenden is a frequent commentator on information withholding, payroll taxes, and fringe benefits and regularly gives presentations on the compliance burdens for companies.